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Risk assessment

Jon Mendelsohn on a government that appears intent on creating even more barriers to economic success

The UK has a government with no governing strategy, no consistent economic policy, divided at the highest levels, and fronted by a weakened Prime Minister. It is no surprise therefore, that we have such a limited Queen’s Speech with so little ambition. Designed as it is to cause no turbulence to the EU Referendum vote and to reunite a Conservative Party which waits with baited breath on the result.

There are of course well known virtues of doing nothing. Limited ambition can sometimes be very powerful. And in some systems of government, it is almost designed to do that. Incrementalism can be a very effective way of governing. There can also be some amusement in making small things appear big. There is an oft quoted maxim that it’s not just the size that matters. But the size of the economic and political challenges ahead will be big.

The Business Department needs to step up to the challenge. The failure to have an active industrial policy is unacceptable. The overall pace of economic growth slowed in 2015. While the economy is still expanding steadily, sector performance is mixed. Services are growing robustly but manufacturing and construction are struggling.

This has been the most prolonged ‘recovery’ in levels of output since the 1920s, with the UK finally reaching the size it had been pre-recession during the second quarter of 2013. Consumer spending has been one of the driving forces of the recovery but concern remain about the basis of this, especially if people are funding it through their savings or loans.

Despite many schemes and much political pressure for banks to improve access to finance for businesses, lending figures show little signs of improvement. The Bank of England has been collecting data only since 2011 and the figures have fallen nearly every month since. The problem is particularly acute for small and medium businesses. Despite assurances from the banks that credit is available, many believe the default answer will be ‘no.’

As we have seen with the recent steel industry crisis, manufacturing is more than just jobs. It has a symbolic place in British economics, despite the fact that its importance has declined consistently over the decades. In 1948, it contributed about 36% of GDP, compared with about 10% today. The number of people employed in the sector has declined even faster than its share of output but new technology has made it more productive with a focus on higher value goods.

Quality higher education is vital to meet the demands of changing industries in our ever globalised world. Falling numbers of apprentices and the uncapped, increasing tuition fees fail to encourage people to continue learning. This risks our workforce being left further behind those in other countries.

Improving education and skills urgently needs decent and up to date infrastructure to teach future generations; as well as keep up with new demands on manufacturing and business. The current plans outlined show telecoms firm BT will continue using already outdated copper wire technology.

To make matters worse, the Universal Service Obligation agreements revealed the government to have u-turned on their 2015 manifesto pledge to ‘roll out universal broadband and better mobile phone connections, to ensure everyone is part of the digital economy’. Broadband will no longer be rolled out to many rural and more remote parts of the UK – in some cases, individuals will have to pay for it. A report last year found our economy losing £11bn a year from slow internet speeds. That’s a cost to our economy that we can ill afford. Without swift action, Ministers will be creating yet another barrier to economic success.